Russia sells 49% stake in maker of AK-47s
MOSCOW: A Russian government-owned conglomerate announced plans on Monday to sell to two private investors just under half of the company that makes Kalashnikov assault rifles.
The company, Izhevsk Machine Works, has made AK-47s, which are the world’s most distributed firearm, since shortly after World War II. And despite years of deep financial crisis, the company has been seen as a crown jewel of Russia’s military industrial complex.
Izhevsk returned to profitability in recent years in large part because of robust sales to American civilians.
The government had been searching for investors to share the burden of modernising the sprawling machine shops and integrating the business, known as Izhmash, with other small arms makers as part of a broader overhaul of military enterprises, an important sector in the Russian economy.
In the deal announced on Monday, the two Russian investors are buying 49% of Izhmash and four related enterprises that make pistols, cartridge cases and machine tools for the firearms industry for 2.5 billion roubles, or about $78 million.
The investors are Aleksei Krivoruchko, a part owner of suburban trains linking Moscow to its airports, and Andrei Bokarev, who has a background in Siberian coal mining.
The controlling stake of 51% will remain with the state-owned conglomerate, Russian Technologies Corporation, an umbrella organisation President Vladimir Putin established in 2007 to revive the military industry, in part by attracting investors.
"Private and state partnerships are an effective model to reform enterprises," Russian Technologies’ chief executive, Sergei V. Chemezov, said in a statement on Monday.
The sale culminates the transformation of a Russian military enterprise that adapted to a civilian clientele, and also testifies to the money to be made in the gun market in the United States, where ownership laws are more lenient than in many other countries.
Because China and former members of the Soviet Union make so many bootlegs of Kalashnikov assault rifles, producing the gun of choice for a broad spectrum of people who carry firearms was never good business for Izhmash until sales to relatively wealthy American buyers picked up.
Kalashnikov-pattern rifles are colloquially known as AK-47s — a name derived from the Russian word for automatic and the surname of the inventor, Gen Mikhail T. Kalashnikov, as well as the year the first prototype appeared.
In an interview in 2012, the former factory director, Maksim Kuzyuk, described sales in the United States as integral to the business; about 40% of the factory’s output went to gun buyers there, about the same number as bought by the Russian military.
The United States is the world’s largest importer of small arms, bringing in about $1.2 billion worth of guns in 2011, accord- ing to the Small Arms Survey, a standard reference of weapons trading globally.
Under a business plan announced along with the sale on Monday, the gun maker said it expected to quadruple its profit from about $193 million last year to $770 million and to triple output to 1.9 million guns annually by 2020.
In the deal, the government bundled five firearms manufacturers and related companies including Izhmash into a new structure that will be called Kontsern Kalashnikov, or the Kalashnikov Concern. These include Izhmekh, a pistol maker, as well as Koshkina, an engineering company making cartridge cases and machine tools for the food canning industry.
Government sales in Russia are also expected to rise.
The American civilian rifle sales helped Izhmash to retool its factory for a new version for the Russian military, called the AK-12, which will be available next year.